Facing competitive pressure, AA to allow carry-on bag for basic economy

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Conceding that its domestic basic economy product was losing out to Delta's less restrictive option, American will do away with its basic economy carry-on ban on domestic and short international fares beginning Sept. 5.

"For customers who are the buyers of this, there's a big airline out there out there who doesn't charge for carry-ons," American CEO Doug Parker said during the carrier's second-quarter earnings call Thursday. 

American rolled out basic economy last year, choosing a more restrictive model than Delta, which introduced the fare class to the U.S. market in 2012. On both airlines, as well as United, basic economy ticketholders have restrictions on seat selections, itinerary changes and cancellations that don't apply to economy. Basic economy passengers also board the aircraft last. 

However, Delta allows basic economy fliers to put a full-sized carry-on bag in the overhead bin, in addition to a personal item that can fit under the seat. 

In contrast, American and United do not allow basic economy passengers to use the overhead bin, just a personal item that fits under the seat. All other bags must be checked.

Parker said that flight search engines -- he specifically mentioned Google -- have developed ways to ferret out the full cost of a basic economy fare for fliers who intend to travel with a carry-on suitcase. As a result, American's seats are losing the exposure battle on flight search engines that display fares based on the cheapest cost.

"We put this product out with a different model than others have done in the past and got to the point where we think the right thing to do is to get in line with the competition," Parker said. 

American's move would leave United as an outlier in domestic basic economy, unless it too does away with the carry-on bag prohibition. Frequently, the Big 3 legacy carriers follow each other on significant market initiatives. 

Parker explained that American is adjusting its basic economy product as part of a broader effort to jump-start revenue growth. American reported revenue of $11.6 billion in the second quarter, up 3.7% year over year. Still, the carrier's revenue growth this year has trailed the rates at Delta and United. 

Don Casey, American's senior vice president of revenue management, said realigning basic economy will bring in an additional $100 million in revenue annually by driving more ticket sales. 

American reported net income of $566 million during the second quarter, down from $864 million a year earlier. The decrease was driven higher by a 10.3% increase in expenses, most notably due to a jump of nearly 40% in fuel costs. 

The carrier said that it will defer delivery of 22 narrowbody Airbus aircraft that were to be delivered between 2019 and 2021 and reduce capacity growth for the whole of 2018 to 2.2% in an effort to bring down costs. The carrier had planned to grow capacity by approximately 2.7% this year. 

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